July 31 (Bloomberg) -- Quality Systems Inc.’s 55 percent
plunge since 2011 and intensifying pressure from an activist
investor has turned the developer of health-records technology
into takeover bait for Siemens AG and McKesson Corp.

The $1.3 billion company is weighing its options after
shareholder Clinton Group Inc. won board seats following an
attempt to oust Chairman Sheldon Razin. Suitors can pick up the
assets on the cheap, with Irvine, California-based Quality
Systems valued at 11 times profit, less than the peer median of
19, according to data compiled by Bloomberg.

Quality Systems’ network of more than 90,000 physicians,
coupled with prospects for increased digitization of patient
data, may make it an appealing target for McKesson, Siemens or
UnitedHealth Group Inc., according to B. Riley & Co. and Cowen
Group Inc. Buying Quality Systems is a way to expand rapidly
into doctors and dentists’ offices, which may help suitors
overlook the company’s recent sales slowdown.

“The stock has been pretty much dead money for over a
year,” Gene Mannheimer, a San Diego-based analyst at B. Riley,
said in a phone interview. However, “the valuation is
attractive. Quality Systems enjoys a very vast footprint of
doctors and has a well-respected and ubiquitous product.”

Banning Founder

The escalation in shareholder pressure began last year,
when director Ahmed Hussein agitated for changes. He resigned in
May 2013. Then, on July 1, Quality Systems said Clinton Group
was seeking changes to the company’s bylaws that would have
prevented Razin, the founder, from staying on the board.

Quality Systems resolved the dispute with Clinton Group on
July 17 by agreeing to nominate three directors selected by the
investment firm. Two of those three board members will join the
five-person transaction committee, which is charged with
evaluating Quality System’s strategy, the company said.

“We are pleased the board has agreed to conduct a full and
objective review of the company’s strategic alternatives and
believe that some of those alternatives may offer stockholders
significant benefits,” Gregory Taxin, president of New York-based Clinton Group, wrote in an e-mail. “We look forward to
the results of the board’s process.”

Susan Lewis, a Quality Systems spokeswoman, declined to
comment on whether the company is considering a sale as part of
its strategy review or whether it’s been approached by suitors.

McKesson, Siemens

The review is more likely to prompt a sale of Quality
Systems rather than lead to the company pursuing its own
acquisitions, Greg Bolan, a Nashville, Tennessee-based analyst
at Sterne Agee Group Inc., wrote in a July 18 report.

He said that San Francisco-based McKesson, the largest U.S.
drug distributor, could boost its increasing presence in
doctors’ offices by acquiring Quality Systems. That would fit
with its purchase this year of PSS World Medical Inc., which
sells medical supplies and services to physicians. McKesson,
with a market value of $28 billion, agreed to pay $1.8 billion,
according to data compiled by Bloomberg.

Siemens, the 71 billion euro ($94 billion) conglomerate
based in Munich, makes sense as a buyer in part because of the
companies’ relationship, Bolan said. In 2005, Siemens agreed to
sell Quality Systems’ outpatient medical-records systems along
with its own offerings. Lewis, the Quality Systems spokeswoman,
said the companies still have a “working relationship.”

Quality Systems could also fit with a health insurer that
has a technology arm, including Minnetonka, Minnesota-based
UnitedHealth, Cowen’s Charles Rhyee said in a phone interview.
The New York-based analyst agreed that McKesson and Siemens also
make sense.

‘Why Build?’

The most likely bidders for Quality Systems are companies
with hospital expertise that want to expand into outpatient
medical centers, he said. “Why build yourself when you can just
acquire Quality Systems?”

Matthias Kraemer, a spokesman at Siemens, said the company
doesn’t comment on deal speculation. Tyler Mason, a spokesman at
UnitedHealth, and representatives at McKesson didn’t return
phone calls or e-mails seeking comment.

About $1.6 billion has been erased from Quality Systems’
market value since the stock closed at a record $50.05 in
September 2011. In the company’s fiscal year that ended in
March, sales increased at the slowest rate since 1995, and
Quality Systems posted its first quarterly revenue decline in
more than a decade this year, the data show.

Deal Premiums

While growth has been slowing for Quality Systems, its
recurring revenue from current customers is an attractive
feature for suitors, said Michael Cherny, a New York-based
analyst at International Strategy & Investment Group LLC.

Buyers have paid an average 32 percent premium in takeovers
of U.S. medical-information systems providers larger than $1
billion, data compiled by Bloomberg show. That would imply a bid
of about $29.82 a share for Quality Systems, or 40 percent less
than the 2011 peak.